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Obama's Capital Gains Plan

Howard Gleckman points out that the top tax rate on capital gains will probably rise to 24% next year:

The top rate on gains and dividends today is 15 percent. If Congress does not act between now and Dec. 31, the maximum rate on capital gains will rise to 20 percent, what it was back in 2001. The top rate on dividends will soar to 39.6 percent, its level prior to those 2001 Bush tax cuts.
Obama has proposed a 2011 tax on investment of 20 percent for both dividends and gains. But remember, the new health law includes an extra Medicare tax of 3.8 percent on investment income starting in 2013. The two changes combined would raise rates on investments to nearly 24 percent, at least for couples making more than about $250,000 and singles earning about $200,000.

TNR has been writing about this issue for more than thirty years. The best policy would simply be to tax capital gains at the same rate as other forms of income. That, in fact, is exactly what happened under the 1986 Tax Reform Act, which swept away preferences for capital gains along with other preferences and loopholes in the tax code. But since people who earn a lot of capital gains tend to wield a lot of political influence, the gap between capital gains income and ordinary income has crept back up over the last 20 years. Even restoring the top rate to 24% would leave it well below the 39.6% top rate for ordinary income.